Essays on Intermediate Financial Accounting for Australian Securities and Investments Commission Case Study

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The paper "Intermediate Financial Accounting for Australian Securities and Investments Commission " is an outstanding example of a finance and accounting case study.   In Australia, all the business firms are required to observe accounting standards that are set up by the Australian Securities and Investments Commission (ASIC). One of the most important accounting standards is on asset impairment that gives procedures that an organization may follow in ensuring that the organization’ s assets are carried at a cost which is not more than its recoverable amount. The important components of asset impairment include goodwill allocation on cash-generating units, impairment testing and key assumptions in impairment testing. The management of CCA (Coca Cola Amatil) at one time realized that its accounting procedures on asset impairment were not conforming to those of ASIC.

The report below therefore compares the accounting standards required by ASIC and those followed by CCA, plus any potential gap and recommendations on filing up the gap. Introduction Asset impairment is defined as the sudden drop in the usability of a capital asset such as machinery, a vehicle or an entire factory. This drop could be caused by physical damage to that capital asset, the asset may become obsolete as improved technology is leading to better assets or it may be due to changes in the laws governing the usage of that asset.

When an asset reaches this point of impairment, it should be written off. Generally, an asset is said to be impaired where its carrying amount is higher than its recoverable amount. In this case, the carrying amount is the value in which as an asset is identified in the balance sheet after the accumulated depreciation and the accumulated impairment losses have been deducted.

On the other hand, the recoverable amount is the excess of an asset’ s fair value less cost to sell and its value in use. Fair value, in this case, refers to the value that can be obtained after an asset is sold in a lengthy transaction between two willing parties while the value in use is the present value, after discount, of the cash flow expected in future from continued use of an asset or its disposal after its (Corporations and Financial Services Committee, 2005). Accounting Standards According to ASIC on Asset Impairment Firms in Australia observe the accounting standards that have been set up by the Australian Securities and Investments Commission (ASIC) on various business issues including asset impairment.

A review done by ASIC found out that some of the business firms do not follow the required standards while doing the impairment testing. Such firms also made use of cash flow information and discount rates that appeared unreasonable compared to the previous cash flows, market information and that firm’ s future expectations (Stickney, Weil, Scipper, & Francis, 2009). On allocation of cash-generating units, ASIC standards require that an asset should be attached to cash-generating units at the least level to ensure that there is no use of cash flows from one group of assets in supporting the value of other assets.

On goodwill, ASIC makes reference to AASB 136 (Australia Accounting Standards Board) which explains that goodwill acquired in an enterprise indicates a payment made by an acquirer expecting to get economic benefits in the future from assets that cannot be identified individually or recognized separately.

According to AASB 136, goodwill should be allocated on two conditions. One is on a single cash-generating unit where it is likely to relate the acquired goodwill to a particular cash-generating unit. Secondly, on a group of cash-generating units where various cash-generating units are anticipated to profit from the synergies coming up from the goodwill obtained and also that the goodwill cannot be allocated to individual cash-generating units on a non-spontaneous basis.


Australian Accounting Standards Board, 2007, Compiled Accounting Standards AASB 136: Impairment of Assets, AASB, Melbourne Australia.

Australian Securities and Investments Commission (ASIC), 2011, Financial Reporting, retrieved on 13th September 2011 from

CCA, 2010, Annual Report, Sydney, Coca-Cola Amatil ltd.

Corporations and Financial Services Committee, 2005, Australian Accounting Standards, Melbourne,

Australian Government - Department of the Senate.

Dagwell, R., Wines, G., & Lambert, C., 2008, Corporate Accounting in Australia, South Wales, UNSW Press.

Stickney, C., Weil, R., Scipper, K., & Francis, J., 2009, Financial accounting: an introduction to concepts, methods, and uses, Cengage Learning, Boston.

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